My suspicion is that if you were looking for a central consensus position on most things’ macro-based at the moment, you couldn’t get a more mainstream institution than Pimco. Its focus is on bonds, but its views are widely respected and on occasion, it can move markets. So, if we’re looking for a baseline snapshot of where we are at the moment than Pimco’s regular 6 to 12-month outlook should suffice.
It is called “Cyclical Outlook: Window of Weakness” and is penned by Joachim Fels, PIMCO Global Economic Advisor, and Andrew Balls, PIMCO Chief Investment Officer of Global Fixed Income.
… the global economy is about to enter a low growth “window of weakness,” which we expect to persist going into 2020 with heightened uncertainty about whether it is a window to recovery or recession. During this window, we think it prudent to focus on capital preservation, to be relatively light in taking top-down macro risk in portfolios, to be cautious on corporate credit and equities, to wait for more clarity, and to take advantage of opportunities as they present themselves.
- In our baseline forecast, the low-growth period of vulnerability over the next several quarters gives way to a moderate recovery in U.S. and global growth in the course of 2020.
- However, our conviction in this baseline economic narrative is lower than usual, given the environment of elevated political uncertainty and fat left and right tail risks.
- During this window of weakness, we think it prudent to focus on capital preservation, to be relatively light in taking top-down macro risk in portfolios, to be cautious on corporate credit and equities, to wait for more clarity, and to take advantage of opportunities as they present themselves.
Global growth Outlook:
Key investment takeaways?
- US Treasuries are the best source of hard duration to provide a hedge
- Cautious on credit
- Likes structured credit especially US non agency mortgages – relatively attractive valuation
- US Agency MBS ‘reasonably attractive’
- EM currency debt favorable
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